Profile: Koch Industries, Inc.

Koch Industries, Inc.

Background and History

Koch Industries, Inc. is the largest privately owned energy company in the United States, and the country's second largest private company. According to Forbes,[1] in 2007 Koch Industries generated $98 billion in revenue and had 80,000 employees.

The company began in 1927 when Fred C. Koch[2] developed a better way to convert heavy oil into gasoline. Eventually in 1940, Fred Koch founded the Wood River Oil and Refining Company. After Fred Koch's death in 1967, his son Charles Koch took control of the company. In 1968, Charles renamed the company Koch Industries, Inc. His brother David H. Koch joined the company in 1970 and became president in 1978.

Despite its humble beginnings, Koch Industries quickly began to buy up other oil competitors. Between the years 1959 and 2004, Koch Industries purchased[3] the Great Northern Oil Company, three oil refineries from Sun Oil, the United Gas Pipeline, and oil refineries in Minnesota and North Pole, Alaska. Koch Industries produces 800,000 barrels[4] of oil per day.

In recent years Koch industries has diversified its business holdings[5] to include more than oil and gas. Koch currently owns companies involved in pollution control, fertilizers, commodity and financial trading, forest and consumer products, fibres and polymers, and ranching. In 2003, Koch purchased Invista, the world's largest fibres company, for $4.4 billion. Two years later, Koch acquired paper products giant Georgia-Pacific for $21 billion.

James Mahoney[9]–Executive Vice President of Operations Excellence & Compliance, and Director

Shareholders

Koch Industries is primarily a family owned business. Until 1983, the shareholders included Charles, David, William, and Frederick Koch. In 1983, Koch Industries purchased the shares of William and Frederick Koch, and those held by the Simmons Family (47.8%), for $1.1 billion[10]. The shareholders now include Charles and David Koch (84%)[11], and few others holding the balance (16%).

Koch and Lobbying

In 2008, Koch Industries spent $15,450,000[12] in lobbying activities,$15,130,000 of which were used to lobby for the oil and gas industry. This sum was more than Koch's cumulative lobbying expenses from 1998-2007. In 2008, Koch Industries spent $15.15 million in lobbying efforts, making it the second largest oil and gas lobby in the U.S. Koch was the 14th largest lobby group across all sectors in 2008, according Open Secret's list of “Top Lobbying Spenders”.[13]

[14]

During the 2008 US federal elections, Koch Industries contributed $1,200,500[15] to various candidates, 85% of which went to Republicans. To put this in perspective, ExxonMobil[16], whose revenue is five times as large as that of Koch Industries, made donations totalling $1,349,421 in the same year.

Environment, Pollution, and Lawsuits

Koch Industries was sued by the government in 1995 and 1997 as a result of a reported 300 oil spills[17] from pipelines that they owned and operated. It is estimated that during this time, three million gallons of oil were dumped into lakes and streams in six different states. The Environmental Protection Agency's lawsuits ranged from $71 million to $214 million. In 2000, the EPA settled the case for $35 million in fines. Also, during the 1990s Koch was fined $8 million for discharging oil into streams in Minnesota.

In late 2000, as the Clinton administration was preparing to leave, Koch was served with a 97-count indictment[17] for covering up the discharge of more than fifteen times the legal limit of benzene, a known carcinogen, from a refinery in Corpus Christi, Texas. The company faced penalties of more than $350 million and four employees were criminally charged and faced up to 35 years in prison. Three months after the Bush administration took office the case was settled out of court. Koch Industries agreed to pay $20 million and plead guilty to one count of concealment of information; in return, the Justice Department dropped all criminal charges against Koch and its employees. Not surprisingly, in the 2000 elections Koch had contributed $800,000[18] to Republican candidates, including presidential nominee George W. Bush.

In 2006, Koch Industries scored a C- in the Pacific Sustainability Index (PSI)[19] created by the Roberts Environmental Center[20] at Claremont McKenna College. The PSI analyzes companies according to their environmental and socioeconomic transparency and performance. In the environmental categories, Koch received an overall grade of D- which was calculated from scores received in three categories: Environmental Intent (D+), Environmental Reporting (D-), and Envirionmental Performance (F). According to the Roberts Environmental Center, the letter grades are normalized to the highest scoring company in the same sector, meaning that Koch scored in the lower range of its sector. Koch Industries' complete PSI scores[21] are listed on the Roberts Environmental Center website.

Finally, according to Public Integrity, since 2000 Koch Industries has paid over $50 milion in fines[22] for violations of the Clean Air Act and the Clean Water Act.

Conservative Think Tanks

Almost since its inception, Koch Industries has been associated with conservative think tanks.

In 1958, Fred C. Koch helped to create the John Birch Society[23]–a conservative political education and action organization. Following in their father's footsteps, Charles and David Koch have created and funded some of the most conservative organizations in the United States. Charles Koch founded the Cato Institute, and David Koch co-founded Citizens for a Sound Economy, which is now known as FreedomWorks. David Koch is also a member of the board of directors for the Cato Institute and the Reason Foundation.

Koch Industries has three charitable foundations that provide funding for conservative organizations: the Charles G. Koch Charitable Foundation, the David H. Koch Charitable Foundation, and the Claude R. Lambe Charitable Foundation. Since 1985, the three foundations have given away $131,872,351[24] in funding.

In describing the aim of his foundation's contributions, David H. Koch has stated, “my overall concept is to minimize the role of government, to maximize the role of private economy and to maximize personal freedoms.” The mission of the Charles G. Koch Foundation is to support “research and education programs that analyze the impact of free societies…[foster] the partnership of scientists and practitioners in order to integrate theory and practice…[and] develop market-based tools that enable individuals, institutions, and societies to survive and prosper.”

Furthermore, Charles Koch's profile[25] on the Koch Industries website says that for over 40 years Charles has been supporting academic and public policy research that has a special focus on “developing voluntary, market-based solutions to social problems.” Between 1999 and 2001, Koch Charitable Foundations gave away over $20 million in funding.

Koch Charitable Foundations provide major financial support to the Heritage Foundation, the Reason Foundation, the Hudson Institute, the Competitive Enterprise Institute, and the Foundation for Research on Economics and the Environment (FREE). Each of these organizations has also received funds from ExxonMobil.[4]

In 1994 Phillip Morris provided CSE with $250,000[28] of funding. In 1996, Phillip Morris' funding to CSE jumped to $500,000.[29] Phillip Morris' other financial contributions to CSE could not be located. In 2000 Lorillard Tobacco Company gave CSE a $100,000 general grant[30]. Included in this grant was a set of guidelines to follow when lobbying on behalf of Lorillard. In his funding letter to CSE, Lorillard's Ronald S. Milstein explained[31]: “we look forward to working with Citizens for A Sound Economy toward fulfilling our mutual goals and ambitions.”

Koch and Global Warming

Koch Industries, Inc. has no official stance on global warming. However, many of the organizations Koch supports have definitive stances on global warming. Think tanks such as the Competitive Enterprise Institute, the Cato Institute, FREE, and Citizens for a Sound Economy espouse limited government and free markets as well as fostering doubt around the dangers of various chemicals, environmental pollutants, and global warming. For example, in 1999 the Citizens for a Sound Economy[32] subsidized the creation of briefs in support of proclaiming the Clear Air Act as unconstitutional.

An Intermountain Rural Electric Association (IREA) memo from 2006 provides the most authoritative information of Koch's position on climate change. The 2006 IREA letter was created in order to drum up support within the coalition against “global warming alarmists”.

Within the letter, the IREA states “there are other groups that are interested in the issue of global warming and the concerns about its costs.” The letter goes on to say that Koch was working with American Electric Power (AEP) and the Southern Company to produce a film to counteract An Inconvienent Truth. Even more, the IREA explains that Koch had decided to finance a coalition on the issue. The coalition was to be adminstered by the National Association of Manufacturers.

Finally, the IREA explicitly links Koch to the global warming denialist circle when it declares, “we have met with Koch, CEI and Dr. [Patrick] Michaels[33], and they meet among themselves periodically to discuss their [global warming] activities.”